47- UCPB v Masagana

Facts:

Masagana Mart obtained five insurance policies from UCPB on its

properties. All policies on their face stated the effectivity term of 22 May
1991 to 22 May 1992. On June 13, 1992, Masagana’s property along Taft
was razed by fire. On July 13, 1992 Masagana tendered managers checks
as renewal premium and in turn UCPB gave an Official Receipt. The
following day, Masagana demanded payment for the razed property but
UCPB returned the managers checks and declined on the basis that (1) the
policies have already expired (2) UCPB already gave a notice of non-
renewal before (3) fire occurred before tender of payment.

Note that the policy has this renewal clause:

26. Renewal Clause. -- Unless the company at least forty five days in
advance of the end of the policy period mails or delivers to the assured at
the address shown in the policy notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy upon payment
of the premium due on the effective date of renewal.

Note also that UCPB had the practice of grantinga 60- to 90-day credit term
within which to pay the premiums on the renewed policies.

Issue: Whether the fire insurance policies issued by petitioner to the

respondent covering the period from May 22, 1991 to May 22, 1992 had
been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date and after the occurrence
of the (fire) risk insured against.

Held: Yes

The General Rule is SEC. 77. An insurer is entitled to payment of the

premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.

However there are four exceptions:

(1)The first exception is provided by Section 77 itself, and that is, in case
of a life or industrial life policy whenever the grace period provision
applies.

(2)The second is that covered by Section 78 of the Insurance Code,

which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the

receipt of premium is conclusive evidence of its payment, so far as to make
the policy binding, notwithstanding any stipulation therein that it shall not be
binding until premium is actually paid.

(3)A third exception was laid down in Makati Tuscany

Condominium Corporation vs. Court of Appeals wherein we ruled that
Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at
the time of loss
(4)Tuscany has provided a fourth exception to Section 77, namely, that
the insurer may grant credit extension for the payment of the
premium. This simply means that if the insurer has granted the
insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be
allowed even though the premium is paid after the loss but within the
credit term.
It is the FOURTH EXCEPTION that is applicable in this case. There is
nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums.

By. J4nT53hN